Not PSU banks but these financiers are behind real estate growth amid slowdown

The PSU banks’ share in the growth of realty sector has halved in the last four years while a new form of financiers has rapidly started to take their place, almost doubling its share. By June 2016, the exposure of PSU banks in the realty sector was 48.57 per cent, which has steeply fallen to a mere 24.34 per cent by June 2019, said a recent RBI report. On the other hand, Housing Finance Companies (HFCs), have increased their share from 12.17 per cent to 23.81 per cent in the same duration.

“While the aggregate exposure to real estates approximately doubled, the aggregate share of HFCs and private banks increased while PSU banks’ aggregate share reduced sharply. This might, however, understate the exposure of PSU banks to the sector given their exposure to a few NBFCs well entrenched in the real estate sector.

Despite the major ongoing slowdown, the fund flows to the realty sector has consistently continued. Even since September 2018, after the IL&FS crisis, all categories of financial intermediaries have increased their exposures to real estates, the sharpest being that of HFCs, the RBI report added.

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The RBI also showed a selection bias, that is, the consumer credit portfolio of NBFCs and HFCs has relatively higher delinquency rates as compared to scheduled commercial banks. Recently, in a step to boost the housing sector, the finance ministry infused a capital of Rs 10,000 crore in NBFCs. The move aimed at boosting individual housing loans, for affordable housing.

Meanwhile, the housing market activity remained muted in the first half of the current fiscal year although such softening has not led to any buoyancy in sales. The implementation of the Real Estate (Regulation and Development) Act (RERA) also helped to bring about a certain discipline and consumer safeguards in the housing market specifically with regard to funding of new housing projects, which is also said to have resulted in real estate companies becoming more cautious about new launches in the short run.